A Proposed Free Speech Tax from Republicans?

Congress is talking about an advertising tax again, and official Washington has returned to familiar battle stations.

The anti-taxers oppose it because it is a tax, and we clearly have enough taxes.  The comprehensive-reform crowd sees it as a reasonable revenue-raiser that conveniently seems to come exclusively from the pockets of the 1 percent.

Indeed, Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee and the man charged with writing the pro-growth tax plan, got a head start on generating economic activity last month when he said he was still considering the revenue-sweeteners in the plan his predecessor, Rep. David Camp (R-Mich.), submitted in 2014.

Among them was a proposal to allow businesses to deduct 50 percent of ad costs in the first year, then the other 50 percent over the next ten.  Since 1913, when the income tax was created, all ad expenses have been deductible in the first year because they are rightly viewed as business expenses – the same as rent, equipment, and salaries.

This set off a beehive of activity on K Street, as lawyers and lobbyists rushed out to make their clients' views known again about an idea that has been proposed – and strenuously opposed – three times now in the last five years.

Brady also engendered some of that always elusive true bipartisanship with his announcement when 124 of his colleagues, led by Rep. Kevin Yoder (R-Kansas) on the right and Rep. Eliot Engel (D-N.Y.) on the left, signed on to a letter in opposition that read, "The potential for strengthening our economy through tax reform would be jeopardized by any proposal that imposes an advertising tax on our nation's manufacturing, retail and service industries."

Engel's heartfelt conversion to pro-growth tax policy is encouraging even if it has more to do with the fact that ad agencies are disproportionately located in New York than any epiphanies on free-market economics. 

But this is not a pro-growth issue.  This is not about sticking it to the 1-percent business owners who count on the additional income to buy their fourth yacht and seventh mansion.  And it's not about where advertisers are located – ads are created, sold, and placed everywhere in America.

More and more, the country is divided into The People Who Know What's Best for Others and The People Who Think They Know What's Best for Themselves.  This would be an enormous victory for the first group at the direct and severe expense of the second.  And if you think government won't take advantage in such a situation, ask any Tea Party group about its tax status and ability to gather donations.

Advertising was taxed once, and only once, in American history.  An ad tax was enacted during the Civil War, when because of the dire situation of being virtually surrounded by his enemies, President Lincoln took unprecedented and never repeated liberties with the First Amendment.

Similar taxes, such as a levy on sales of ink and paper in Minnesota, have been struck down by the courts.

If such a tax were to become law, how long, in today's charged political environment, until it would be doubled for disfavored products, such as tobacco or ammunition?  How long until companies owned by people who publicly favor one side are rewarded for their loyalty and those who run afoul of the powers that be see their tax bills go to unattainable heights?

Don't think it couldn't happen.  Numerous bills forbidding or taxing ads on alcohol, tobacco, and other societally controversial products have been introduced, as have some clearly self-interested bills, such as one to outlaw direct-to-consumer pharmaceutical ads.

Rep. Rosa DeLauro, a Democrat congresswoman from Connecticut, introduced legislation in 2013 that would have removed the deduction entirely for advertising "unhealthful food products" to children.  Then-rep. Dennis Kucinich (D-Ohio) introduced a similar measure in 2010.

Giving government the power to determine what is an advertisement; whether an ad advocates disfavored behaviors; and how much tax should be paid on ads that, for instance, criticize the government would effectively eviscerate the First Amendment.

Ads are information.  They provide signals that are essential to a free market and help consumers find the products they want at the prices they can pay.  The Supreme Court is clear that they are covered by the First Amendment's "freedom of the press" provision.  The power to tax information is the power to control a message.

"Prohibiting full business deductions for advertising expenses would be indistinguishable from a government fee on the exercise of the First Amendment right to speak in a public park," wrote Bruce Fein, constitutional scholar, at the Huffington Post.  "Such government conditions placed on the enjoyment of constitutional rights would be presumptively unconstitutional."

The Joint Committee on Taxation said the Camp proposal would raise $169 billion from 2014 to 2023.  That's decent coin, but there is no way it is worth it – especially when considering that advertising spending generates 16% of the nation's economic activity.

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